Escalation clauses are common in offers to purchase Meridian Idaho home listings these days!
Building escalators can go up or down.
In real estate, escalator clauses are intended to go in only one direction – UP!
Escalation clauses provide a built-in capability for a buyer to outbid other competing offers in a multiple-offer situation, but they can be risky when not properly prepared.
I’m personally not a fan escalation clauses, for a variety of reasons, including:
Buying On Emotion
Escalation clauses are often used by buyers who are buying on emotion, which is generally not a good way to buy a home.
Logical reasoning often goes out the window when emotion takes over and a buyer just has to have the house!
Lacking a price limit, an escalation has no ceiling price and can result in a buyer paying far more than intended.
Buyers should never, ever use an escalation clause lacking an upper price limit.
Escalation clauses can stimulate competing buyers to pay more than the appraised value, which can result in the buyer to pay the cash difference above the appraised value if they want to close.
If the buyer is unwilling to pay that cash difference, the buyer’s financing will then fail, resulting in a failed transaction with the property going back on the market.
I personally do not recommend using an escalation clause when representing a buyer.
When I’m representing a seller who receives an offer with an escalation clause, I fully disclose the risks mentioned above.
Like them or not, escalation clauses will remain common in the Meridian Idaho real estate market until our market inevitably cools off.
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